You Are Comparing Two Annuities Which Offer Monthly Payments for Ten

question 46

Multiple Choice

You are comparing two annuities which offer monthly payments for ten years.Both annuities are identical with the exception of the payment dates.Annuity A pays on the first of each month while Annuity B pays on the last day of each month.Which one of the following statements is correct concerning these two annuities?

• A)Both annuities are of equal value today.
• B)Annuity B is an annuity due.
• C)Annuity A has a higher future value than annuity B.
• D)Annuity B has a higher present value than annuity A.
• E)Both annuities have the same future value as of ten years from today.

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Definitions:

Collude

To engage in a secret agreement or cooperation, especially with the intention of cheating or deceiving others.

Cartel

An association of independent businesses or countries that work together to control production, pricing, and marketing of goods to monopolize a market.

Monopoly

A firm that is the sole seller of a product without any close substitutes.

Game Theory

The study of how people behave in strategic situations